ISLAMABAD: K-Electric (KE) has sought amendments in tax laws including income tax, minimum turnover, payment of sales tax liability on cash collection, saying the power utility company along with the other companies in power sectors are under severe liquidity crisis and deposit of taxes on accrual basis is putting extra burden on this sector.
The power utility company, in its letter to Federal Board of Revenue (FBR) referred to the letter of February 06, 2023 through which budget proposals were sought by the FBR.
In this context, KE proposed certain amendments in Income Tax Ordinance, 2001 and the Sales Tax Act, 1990 in the upcoming Finance Bill for the year 2023-2024 which are creating anomalies and causing interpretational issues for KE in implementation of law; and request consideration of its recommendations in the upcoming Budget for 2023-2024.
The summary of key issues faced by the company is as follows:
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1- Income Tax Exemption on Electric Power Generation Projects (Clause 132): prior to amendments made in Clause 132 of the Part I of the Second Schedule to the Income Tax Ordinance 2001 through Finance Act, 2021 and Finance (Supplementary) Act, 2022 profits and gains derived by a taxpayer from an electric power generation project was exempt from income tax.
However, through Finance bill 2021, a new proviso has been inserted in Clause 132 of the Part 1 of Second Schedule to the Ordinance, 2001 to withdraw the exemption from such IPPs who have not taken Letter of Intent (LoI) or Letter of Support (LoS) for supply of electricity with the Federal or Provincial Government.
The relevant extracts are reproduced are as follows: “provided further that the exemption under this clause shall be available to persons, who enter into agreement or to whom letter of intent is issued by the Federal or Provincial Government for setting up an electric power generation project in Pakistan on or before the 30th day of June, 2021 and who obtains the letter of support on or before the 30th day of June, 2023.”
By adding a proviso, an anomaly has occurred as it restricts the exemption to the existing IPPs supplying power to the Federal and Provincial Government only whereas previously such exemption was available to IPPs supplying power to KE, as well.
The intent was never to discriminate and deprive existing KE IPPs from this exemption and KE requests to kindly reconsider the above position and the income tax exemption be restored for KE IPPs as well for level playing field.
2-Rationalization of Minimum Tax on Turnover to Electricity Distribution Companies: KE has stated that electricity power tariff and profit margins of Electric Power Distribution companies (Discos) are regulated by National Electric Power Regulatory Authority (Nepra).
The profit margin of the Discos on the capital assets employed is in the business, whereas minimum tax (turnover tax) under section 113 is derived from the turnover of the company.
Copyright Business Recorder, 2023
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